July Sees Slight Drop in Unemployment But Also in Wage Growth

The latest report from the Office for National Statistics showed that in the month following the EU referendum, wage growth fell, but other metrics showed and otherwise broadly resilient labour market.

The report showed that between the three months to July 2015 and the three months to July 2016, average wages in the UK grew by 2.1%. This was down from the 2.3% annual increase seen over the three months to June this year. In nominal terms (not adjusted for inflation), average pay (excluding bonuses) for a UK worker was £472 per week in July, going up to £505 with bonuses taken into account. This is up from £463 (£493 with bonuses) for the three months to July 2015.

Since the data covers a three month period, not just the month of July, it is not clear what effect the Brexit vote has had on the change in wage growth, despite some seeing the 0.2% drop as a sign that the ‘Brexit effect’ has taken hold.

The same applies to the employment levels, which remained broadly similar to previous readings. There were 39,000 fewer unemployed people in the UK in July than there were three months previously, with the unemployment rate remaining at 4.9%. However, the number of people claiming unemployment benefits went up slightly, by 2,400, to reach 771,000. The employment rate painted a more positive picture, with 174,000 more people in employment than there were in April.

Again, with the data covering a three month period, the effect of the referendum is unclear, and opinion is fairly split over how it will manifest itself.

On the one hand, surveys immediately following the referendum showed business confidence at a low, the effects of which for workers tend to take time to manifest.

As ING economist James Knightley explained: “The employment figures have held up well despite Brexit because the data is a rolling three-month figure. It includes numbers for May and June, ahead of the referendum, which most corporates expected to result in the UK staying in the European Union. We have to remember that it also takes time for businesses to react to shock outcomes like the Brexit vote.

“Consequently, we expect to see softer jobs growth in coming months while wage growth is unlikely to accelerate with businesses set to act cautiously on pay given the economic uncertainty.”

On the other hand though, subsequent surveys show at least a short term recovery from the initial hit. However, analysts have been cautious to celebrate recent positive readings since, with the timing, it is unclear whether they are to be taken as a sign that the immediate Brexit shock was overstated, or whether the short term bounce back is just that – short term bounce back – rather than a sign of an upwards trend.

Scotia bank’s Alan Clarke dismissed those citing Brexit concerns, arguing that most of the latest data sets point towards a more of less robust economy and labour market.

He said: “It is business as usual after the referendum. Firms have not stopped hiring. Blaming the slower wage numbers on Brexit is putting the cart before the horse because the wage data lags by a considerable margin.

“Clearly there are risks that this is the calm before the storm. But for now there don’t seem to be any storm clouds on the horizon.”